Small firms robbed of huge contracts by red tape madness, say business leaders

Whitehall red tape must be cut to stop small firms being robbed of the chance of winning valuable public sector contracts, business leaders and politicians have warned.

The plea from John Cridland, boss of business group the CBI, and the parliamentary Public Accounts Committee comes a year after Chancellor George Osborne pledged to make it easier for small firms to win some of the £187billion in Government spending dished out by departments each year.

Cridland told The Mail on Sunday: ‘Full credit to the Government for its intent but the proof of the pudding is in the eating and it’s far too early to eat the pudding. It is just not there yet.

Brick wall: Sara Murray was shocked by the bidding process

‘The biggest challenge for small firms is that they are crowded out of public procurement by the complexity of the process – going through piles and piles of paperwork before you even get on a tender list. Entrepreneurs can’t do that, they just don’t have the time. We’ve got to make it simpler. If you want small companies to contract directly, make it much less bureaucratic.’

Margaret Hodge MP, chairwoman of the PAC, warned on Friday: ‘We believe Government needs to urgently get its house in order so that this expenditure is properly open to public scrutiny.’

She called for the extension of freedom of information to public contracts with private providers and warned: ‘An absence of real competition has led to the evolution of privately owned public monopolies which have become too big to fail.’ She said small and medium enterprises have been squeezed out.

The CBI says £20 billion of Government spending goes to 39 suppliers. Cridland added: ‘It’s perfectly legitimate when the Government gives a contract to the large companies to ask: ‘How many small companies are you going to use?’

Sara Murray, co-founder of electronic tagging device firm Buddi, walked away from a multi-million pound contract with the Ministry of Justice this month after spending £2million on the project over two years. She says that since bidding for the contract, her firm has won a raft of deals with foreign governments, including the US.

STAY UP-TO-DATE VIA TWITTER

Want to stay ahead of the curve and hear the latest small business news and advice?

She told The Mail on Sunday: ‘It was a protracted process in which we produced thousands of pages of documentation for an ever-changing specification. It is the equivalent of going to buy a smartphone and having a three-year negotiation period. It no longer makes commercial sense for us. I was flabbergasted. In one round of the bidding we had 13 boxes of A4 photocopier paper. They said: “Can you send more details”.

‘In the US they went through the bid and stuck to their timeline. We were banging our head against a brick wall trying to get the MoJ to do a pilot that never happened.’

Numbers: Government orders

Business consultancy Spend Network, which monitors public contracts, has analysed £1trillion of EU public spending to compare the efficiency of different countries. It found that the UK is third-slowest in the EU for completing tenders, behind only Greece and Ireland.

In his 2013 Budget, the Chancellor pledged: ‘To help small firms, we’ll increase by fivefold the value of Government procurement budgets spent through the Small Business Research Initiative’.

A Cabinet Office spokesperson said: ‘There is more to do as part of our long-term economic plan, but the proportion of direct and indirect business with small and medium sized firms has reached nearly 20 per cent.’

For a round-up of business groups’ Budget recommendations for 2014, visit thisismoney.co.uk.